The Arizona Republic - July 2008
A federal housing bill poised to become law this week is likely to help ease Arizona's housing-market pain, but a variety of local voices in the industry said it won't heal the deeper wounds.
Too many residents are neck-deep in unaffordable mortgages for Arizona's cut of the proposed $300 billion in federal refinancing aid to save them all, government and business leaders said Wednesday.
"We've got a huge problem here," said Fred Karnas, state Department of Housing director. "It's obviously not going to solve the problem, but it will bring a variety of resources for partial solutions."
Those resources provided in the bill include a higher cap on Federal Housing Administration loans; $3.9 million in community-development block grants to buy and restore abandoned properties; an unlimited line of credit to stabilize mortgage giants Fannie Mae and Freddie Mac; and the creation of an independent regulator to ensure sound management and operating standards for those lending institutions.
"Overall, we're really positive about it," Karnas said. "I've been joking . . . that every housing bill we've wanted to get passed in the last 18 years somehow wound up in this bill."
Kevin Egan, president of Tempe luxury-home builder T.W. Lewis, said any measure that helps maintain the stability of Fannie Mae and Freddie Mac is good for Arizona's housing market.
Egan said home builders such as T.W. Lewis that specialize in "move-up" homes, those for existing homeowners who have accrued equity and want or need a larger home, have been struggling even more than builders at the extreme high and low ends.
Therefore, raising the cap for FHA loans from $362,790 to $625,000 (which follows a temporarily higher limit earlier this year) will help get midrange customers buying again, he said.
"I think we have to get investors back into the market," Egan said.
ARM conversions
Home buyers struggling to keep up with adjustable-rate loan payments would be allowed to convert those loans to 30-year, fixed-rate FHA loans under the legislation.
But Karnas said some Arizona borrowers are so deep in negative equity that no realistic refinancing deal would allow them to keep their homes.
"I think there are some markets in which the bottom has completely fallen out," he said.
Margie O'Campo de Castillo of Arizona Dream Realty said she doesn't understand why lenders aren't already trying to help homeowners refinance into fixed-rate loans to avoid foreclosure.
"The housing package will help some," she said, "but we shouldn't kid ourselves. Housing is just one failing pillar of our economy, and I'm not sure we the taxpayers have enough money to fix our housing crisis."
Property-rehab grants
The housing bill also will provide $3.9 billion in community-development block grants for local governments nationwide to buy and rehabilitate foreclosed properties.
President Bush initially threatened to veto the bill unless Congress removed the grant provision, which his administration called a bailout for banks.
Still, Karnas said, the amount is not significant enough to take on a large percentage of foreclosures.
Foreclosures across metro Phoenix numbered 16,647 for the first half of the year, up from 9,966 during all of 2007 and 1,070 in 2006.
Karnas said Arizona officials expect to receive about $100 million of the bill's grant money, based on a formula that favors states with the greatest number of foreclosures.
"A hundred-million dollars maybe buys you 500 homes," Karnas said. "It'll make a dent, but it won't solve the problem."
Federal backing
The bill also is aimed at protecting future loans by offering mortgage giants Fannie Mae and Freddie Mac an unlimited line of credit and allowing the federal government to buy equity in those institutions. Federal legislators say it will also promote sound management and operating standards of those government-sponsored institutions by creating an independent regulator with wide-ranging authority.
Herbert Kaufman, a finance professor at ASU who used to work at Fannie Mae in Washington, said the legislation should help to lower mortgage interest rates. Kaufman also said the bill, along with recent government promises to support Fannie Mae and Freddie Mac, should help calm jittery investors here and abroad.
"Foreign investors, so far, have been very patient," said Kaufman, referring to turmoil in the U.S. financial markets.
Another provision likely to affect Arizona's new-home market is the proposed ban on federal insurance for mortgage loans in which a home's seller pays the buyer's down payment through a non-profit intermediary.
Down-payment assistance requires the buyer to receive approval for a Federal Housing Administration loan, and the seller must agree to pay the buyer's down payment, usually 3 to 6 percent of the home's sale price. Then, the lender arranges with a non-profit assistance provider to accept the seller's donation, which it then gifts to the buyer, minus a transaction fee.
Seller-funded, down-payment assistance has drawn criticism from the FHA, which considers the practice a "shell game" that circumvents sound lending standards and carries a higher default rate.
However, some local lenders say down-payment assistance is responsible for at least half of all mortgage loans currently being issued in the Valley. They are worried that eliminating the practice would knock the already staggering local housing economy flat on its face.
"It has really opened the doors to so many people, and now those doors are going to be shut," Phoenix loan originator Dean Wegner said.
Wegner also questioned why the bill includes an increase in the required down payment on FHA loans from the current 3 percent to 3.5 percent.
"It's going to hurt good people who want to buy houses, who don't have any issues," he said about the bill, "and it's going to help the people who are in trouble."
